FOOL PLATE SPECIAL
The most widely held stock in America IPO'd last year, and it has doubled since. Boring is back with MetLife, as solid growth and a stable investment portfolio helped this insurance giant stay the course last year. Shareholders have also enjoyed the benefits of cost-cutting, and with management installing a plan that should align compensation with performance, the company seems a good bet to continue performing.
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OK folks, you want sexy companies with sexy earnings, go read yesterday's piece on Ciena (Nasdaq: CIEN), cause MetLife (NYSE: MET) definitely lacks the appeal of a personal email from Anna Kournikova. But, what many of you know because MetLife, not Lucent (NYSE: LU), is the most widely held stock in America, is that its stock performance has been plenty sexy. Since its April 2000 IPO, MetLife shares are up more than 100%. On Tuesday, MetLife reported fourth-quarter and full year 2000 earnings. Fourth-quarter pro forma net income (excluding net realized investment gains of $12 million and a surplus tax credit of $175 million) came at $0.51 per share compared to $0.47 per share for the fourth quarter of 1999. This 9% bump in fourth-quarter EPS growth was only half the story, literally. Calendar year 2000 EPS growth was 18% -- up to $1.96 from $1.66. Individual annuity premiums were strong, as usual, showing a 21% rise for the year while total premium revenue was up 35%, thanks in part to its entrance to the reinsurance business with the acquisition of GenAmerica in January. Excluding GenAmerica, insurance premiums were up 21%. Approximately half of MetLife's revenues are derived from premiums, and a large chunk of the rest (36% last year) comes from investment income, which was up 20% for the year. MetLife is a monster. MetLife business divisions are individual (life insurance), institutional (too much stuff to explain here), auto & home (duh!), international (no duh!), reinsurance (insurance for insurance companies), asset management (what the Fool thinks you can do on your own), and corporate (whatever's left over). Most segments did quite well last year. The company collected more than $16 billion in premiums last year and pulled down slightly over $11 billion in net investment income from an average of $146 billion in investable assets. Therefore, a back of the napkin return calculation yields a 7.5% return last year. Not bad compared to the losses taken by the Dow and Naz last year. Like pension funds, insurance companies deploy stringent asset allocation models to their portfolios and therefore usually do not stray too far from the overall market. But, unlike the Dow or Naz, performance from these insurance giants takes into account other asset classes such as real estate, mortgage loans, and fixed income investments (bonds). And let's not forget that Snoopy's favorite insurer is rated Aa2 and AA by Moody's and Standard and Poor's, respectively. MetLife's April 2000 demutualization followed John Hancock Financial's (NYSE: JHF) demutualization in January 2000, and another century-old insurance giant, Prudential, announced its intention to demutualize in December. Demutualization, which is the process of converting a mutual insurance company to a stock company, is all the rage among these companies because it gives them greater access to capital to grow and to better compensate (e.g. with options) employees. John Hancock has also seen it shares soar nearly 100% since IPO. These old-time institutions are also getting a pop from Wall Street under the promise of potential cost savings. For decades, they operated under antiquated rules and antiquated structures, but with the reform of Glass-Steagall regulations, investors are hoping for serious productivity increases. MetLife recently outlined a plan for new initiatives like (1) performance reviews for employees (hard to believe this was not already in place), (2) performance hurdles for agents (ditto), and (3) incentive-based compensation. The demutualization now allows management to tie employees and executive salaries to the performance of its shares. With a goal of 15% EPS growth, don't expect the stock to keep up its current rate of ascent, but this goal along with a solid portfolio of investment assets keeps MetLife out of the doghouse. Snoopy would be proud. Todd Lebor is a co-manager for the Rule Maker portfolio and lives in Alexandria, VA. At the time of publication, he owned shares of MET & JHF. Todd's other holdings can be found online along with the Fool's complete disclosure policy.
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